Photo: An aisle in Carrefour supermarket in Jakarta, Indonesia on May 8, 2017. 1000 Words/Shutterstock.com
JAKARTA – Indonesia’s central bank, as a member of the newly-established National Committee for Islamic Finance (KNKS), will propose a comprehensive national policy package to develop the halal industry from the bottom up instead of top down to boost both the downstream and upstream sectors, Anwar Basori, head of the Islamic finance and economy department at Bank Indonesia, told Salaam Gateway.
“We want a portion of the national state budget to be allocated to halal industry development. We will prepare it for the next national medium-term development plan (RPJMN) 2020-2024,” he said.
Basori believes Indonesia’s requirement for the use of local materials and content (Tingkat Kandungan Dalam Negeri, TKDN), introduced in 2009 and phased in gradually for various industries, will spur development of the halal supply chain as the nation works towards 2019 when all halal products must be certified and labeled as such.
The central bank estimates the national current account deficit will widen if halal products cannot be fulfilled by local suppliers. The current account is the broadest measure of a country's foreign trade in goods and services. A deficit indicates the economy imports more than it exports. Indonesia’s current account deficit has improved from more than 4 percent of GDP in 2013 to 2 percent in the second quarter of this year.
CALLS FOR MORE SUPPORT
Industry body the Indonesian Food and Beverage Association (GAPMMI) is calling for more support from the government, saying the local content requirement for products manufactured in the country is not enough to boost domestic halal production.
GAPMMI general chairman Adhi Lukman told Salaam Gateway that other factors, including challenges to land acquisition and high financing costs, still hamper investments in the downstream sectors of the halal industry.
“We face many challenges including land availability and limited tax incentives. We need such tax incentives like tax holidays as investments into downstream sectors need huge capital yet they take a longer time to reach breakeven point. The requirements for tax holidays are still quite tight compared to other countries like Vietnam or India. On the other side, financing from banks is still costly; they set high credit rates,” he said.
According to Lukman, the government still needs to channel investments to the downstream sectors of the halal industry by offering incentives, mainly for land acquisition. He cited the example of 17 companies backing out of investing in the downstream sectors of the sugar industry due to limited land availability.
Most of GAPMMI’s 450 members produce halal food and beverages, according to Lukman.
The government has set strategic priority and supporting industries in the national industry development masterplan (RIPIN), yet coordination between ministries and institutions still needs to be improved to reduce reliance on the imports of raw materials.
According to Lukman, most food and beverage raw ingredients and materials are currently imported. Indonesia imports 100 percent of its use of wheat and oats, and 70 percent of its consumption of milk, fruits, soybean, refined sugar, and flavorings.
LOCAL CONTENT REQUIREMENT
Indonesia’s regulation for the use of local content (TKDN) covers numerous industries, and goods and services such as smartphones, cars, power plants, maritime supporting oil and gas, dairy, and franchise businesses including food, beverage and the modern retail sector.
The minimum use of local content varies across industries and gradually increases over government-specified timelines.
The rule can also be met with local partnerships and investments. Apple Inc received a “local content certification” in November last year after it committed to invest around $44 million over three years in a research and development centre in Indonesia. The investment enabled the tech giant to start selling its latest iPhone 7 in the country.
An upcoming regulation is expected this month for the electronic sectors.
The calculation for local content on goods and services is made based on total local costs of production and/or services against the total cost of the goods and/or services.
TKDN has been criticised as contravening international trade law governed by the World Trade Organisation (WTO).
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